Due diligence elements are the fundamental issues that are incorporated into the risk assessment process for conducting a due diligence examination. A wide variety of stakeholders can benefit from this process, such as companies that wish to look at their potential target prior to the merger or acquisition or investment; investors seeking an exhaustive risk assessment prior to investing; and employees looking at potential employment candidates.
Due diligence may include different types of checks depending on the purpose and scope of the process. The most common checks include identity verification and screening against lists of sanctions and criminal watchlists, as also an investigation into the origin of the funds. Additionally the risk-based approach has to be used to determine whether enhanced due diligence (EDD) measures need to be applied. This is because customers who have a higher risk of money laundering or terrorist financing require additional measures, like more frequent monitoring of transactions and the gathering of more data.
EDD can also include assessing the beneficial ownership of corporate customers to mitigate the risk of hidden ownership. The process could also involve examining the structure of the company’s operations and identifying any relationships with public officials which could lead to bribery or other corruption crimes. In addition, it’s essential that EDD includes a regular review of international sanctions lists in order to ensure compliance with the regulations.
A successful due diligence process must provide a concise overview of the key findings for those who don’t have the time to read an entire report. The summary should be brief and include the type of due diligence carried out (e.g. an extensive risk analysis before investing in a company) as well as the rationale behind the diligence, and any important results.